Upward parallel shift of the yield curve

Monday, 2 December 2019 00:00 -     - {{hitsCtrl.values.hits}}

  • Foreign buying in rupee bonds picks up to a 42 week high
  • Inflation decreases for the first time in four months
  • Money market liquidity increases further  
  • Policy rates unchanged


By Wealth Trust Securities

The Central Bank of Sri Lanka continued to keep the policy rates steady at 7.00% and 8.00% at its seventh monetary policy announcement for the year 2019, released on Friday 29 November.

The aggressive selling interest during the week ending 29 November saw secondary market bond yields increasing; reversing its positive momentum witnessed the previous week. 

The overall yield curve witnessed a parallel shift upward with the liquid maturities of 2023’s (i.e. 15.03.23 and 15.07.23), 2024’s (i.e.15.03.24, 15.06.24 and 15.09.24), 01.08.26 and 15.06.27 increasing sharply to hit weekly highs of 9.55%, 9.63%, 9.86%, 9.95%, 9.97%, 10.15% and 10.25% respectively against its previous weeks closing levels of 9.10/18, 9.12/20, 9.45/55, 9.50/53, 9.52/55, 9.80/90 and 9.82/92. This upward momentum was further supported by the outcome of the weekly primary bill auction where the weighted average yield of the market favourite 364 day bill increased by 07 basis points to 8.29%. However, the foreign holding in Rupee bonds continued to increase, recording a 42 week high inflow of Rs. 4.28 billion for the week ending 27 November. Furthermore, the Point to Point inflation for the month of November decreased for the first time in four months to register 4.4% against 5.4% recorded in October while the annual average increased to 4.1% from 4.0%.

The daily secondary market Treasury bond/bills transacted volume for the first four days of the week averaged Rs. 13.05 billion. 

In money markets, overnight call money and repo rates decreased marginally to average 7.47% and 7.51% respectively during the week as overall liquidity in the system increased further to Rs. 11.73 billion, in comparison to the previous weeks level of Rs. 6.4 billion. The Open Market Operations (OMO) Department of the Central Bank of Sri Lanka was seen draining out liquidity during the latter part of the week by way of overnight and four day repo auctions at weighted averages of 7.50% to 7.55%.


Rupee loses

 In the Forex market, the USD/LKR rate on spot contracts depreciated during the week to close at Rs. 180.90/00 against its previous week’s level of Rs. 180.00/15 on the back of buying interest by Banks. The daily USD/LKR average traded volume for the first four days of the week stood at $ 100.59 million.

Some of forward dollar rates that prevailed in the market were one month – 181.30/50; three months – 182.20/50 and six months – 184.10/40. 



Samurai bond to be delayed